Should You Opt for Moratorium 2.0? Know the Cost of 6 Free EMI Months

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Covid 19 has severely disrupted financial activities all across the globe, let alone India. In face of double whammy of financial and medical emergency in the country, the Governor of Reserve Bank of India has announced RBI’s grant to banks & financial institutions for extending EMI moratorium for another 3 months (till August 31, 2020) to facilitate some liquidity relief to borrowers.

Already all major public banks, private banks, & NBFCs have acknowledged Moratorium relief for three months-March, April & May 2020 to their customer. With effect of today’s announcement, the India’s COVID 19 Moratorium Package becomes a 6 month repayment deferment plan.

If you decide to opt for Moratorium, your next term loan EMI or Card Statement will be due in September 2020.

Amid nationwide lockdown, when your income has already been affected harshly the loan holiday of 6 months appears to be a great relief from your lender.

However, it is worth pondering, whether the deferment of EMIs, will ease your liquidity crunch at all? And what is the cost of this loan holiday?

It is important to understand that your bank is not doing a charity by not allowing you to repay the loan you owe. There is a cost attached for deferring the payments. 

So, let’s simplify the mathematics involved:

What exactly is your bank offering?

Your bank is offering cash flow liquidity as elucidated in the table below. The benefits of Moratorium are precisely two: A) You have more cash in hand by skipping fixed bank obligations and B) There will be no impact on your credit rating by missing the payments for a few months.